What Madison Avenue Can Learn From Wall Street

If you overheard a conversation between two CMOs you would likely hear terms like bid, performance, and optimization. In fact, according to the February 2010 Fuqua/AMA CMO study, “ROI concerns dominated…” the topics CMOs wanted to discuss among themselves. This emphasis on marketing return on investment may seem more appropriate on Wall Street than Madison Avenue, but this new focus on accountability is a good thing. Since CMOs are spending billions annually building marketing portfolios and “investing” in different marketing campaigns across multiple media types, applying some of Wall Street’s portfolio optimization wisdom will help them drive the highest ROI (define) from their advertising efforts. Below are some marketing portfolio optimization tips that would make a marketer from the house of Goldman or Morgan proud.

Set the goal – ROI. Common across all advertising efforts should be the desire to drive the most sales or new customers for a given level of advertising spend. While creative can win awards, the acid test for great marketing is whether or not it earns the advertiser a positive return on monies invested. The implication here is that the right metric to compare elements of a marketing portfolio is each component’s ROI. When deciding where to invest advertising or marketing dollars, yielding the highest return should be the goal.

Measure results. With increasing the return of the marketing portfolio as the goal, it is essential to measure and track, as closely as possible, the actual profit of each element of your marketing program. This is easier for direct marketers than it is for brand marketers; however, for both, it requires having the best possible measurement capabilities on hand. It is difficult to imagine anyone investing in a mutual fund that could not describe its returns. In today’s marketing environment, none of us should invest in advertising programs that are not measured.

Account for risk. Returns are just part of the portfolio optimization equation. Proper media mix planning must account for the different likelihood of success (risk) surrounding a particular marketing effort. For example, the results of search campaigns are highly quantifiable and predictable. Conversely, laying big bets on a Super Bowl ad amounts to a marketing Hail Mary. They may generate a ton of buzz and sales, or fall flat. Allocate marketing funds first to tried and true programs that generate consistent positive returns, then take on increasing levels of uncertainty (risk).

Be disciplined; don’t fall in love with a media investment. Advertising and marketing are creative endeavors. We all have our favorite commercial, tag line, display advertisement, etc. But personal preferences should yield to the cold, hard financial facts. If a marketing campaign, creative, or program is generating sufficient sales, invest more. If it isn’t, as a good trader would say, “dump it.”

Don’t put all your eggs in one basket. There is no magic stock that can optimize a portfolio. Similarly, there is no silver bullet media that can optimize a marketing campaign. Great marketers must build an integrated marketing plan by testing and combining traditional media (TV, print, radio) and emerging media (search, e-mail, social, display) to create an optimal portfolio.

Don’t overpay. Similar to well-liked stocks, some popular media is overpriced. Getting prominent placement in key media like search increasingly demands outbidding the competition. But while being at the top of a search results page has emotional appeal, if the ROI is negative, let the competition hurt their profitability by overbidding.

The demand for increasing financial advertising accountability is forcing marketing departments to develop and learn new tricks of the trade. By borrowing some of the hard-learned lessons of Wall Street, the Madison Avenue creative community can accelerate this evolution and drive better results for their marketing investments.

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